Federal court hears case challenging financial surveillance regulation
From a young age, Celia Flowers dreamed of starting her own business, and in 1993, her dreams came true. After buying a title agency, she has successfully scaled her business, which now serves more than 80 counties across Texas.
But this week she found herself in a federal courtroom, challenging a federal law that threatens her dreams.
Invasive regulations
In August of 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a rule, which will not be enforced until March 1, 2026. The Department claims that it has authority under the Bank Secrecy Act to promulgate a rule deeming non-financed residential real estate transactions “suspicious.” So, when a property is transferred to a trust or an incorporated entity, and the buyer chooses not to take out a mortgage (I.e., take out a loan), the rule will typically require East Texas Title to collect and report myriad of private information.
If FinCEN’s rule goes into effect, it will substantially burden Celia’s business, compelling her to collect and report private information related to cash purchases. For every transaction, Celia will be required to spend time and money collecting and reporting this data. And some of those costs may well be borne by the home buyer, seller, or both.
Congress did not give FinCEN the power it claims. But if its elastic view of its authority is accepted, there is a constitutional problem, because it would mean Congress has essentially given the agency a blank check to require reporting of any class of consumer transaction it sees fit.
Before the court
Much of the oral argument focused on statutory interpretation, considering whether the statute did in fact authorize the Department’s Rule.
“The problem with FinCEN’s interpretation is that there is no limiting principle under that elastic view of the agency’s authority,” Luke Wake, an attorney for Pacific Legal Foundation, said. “Under the government’s interpretation, what is ‘suspicious’ is essentially in the eye of the beholder. So, if we accept that view, then we walk into a nondelegation problem.”
The statute limits FinCEN to requiring reporting for transactions that are objectively suspicious—including what a reasonable person would understand to be suspicious. But FinCEN wants to stretch its authority to compel disclosure of commonplace transactions that have obvious, innocent, and legitimate justifications. With some limited exceptions, FinCEN’s rule categorically deems non-financed transactions as suspicious, simply because some bad actors exist. But that’s not what Congress authorized. This is not an open-ended government surveillance authority
“You can’t label normal consumer transactions as suspicious because there are a handful of bad actors out there,” Luke Wake said.
Limits on congressional power
Only a portion of the oral argument addressed the Commerce Clause, even though it is central to protecting Celia Flowers and her customers.
The U.S. Constitution gives only limited enumerated powers to Congress. In this case, Congress violated the Commerce Clause—if it authorized this Rule—because the Rule itself does not regulate any activity that has any impact on the national economy. It merely regulates failure to give federal law enforcement notice of transactions regulated entirely at the state and local level.
The judge said that a decision will be released soon. Considering the Eastern District of Texas’s current docket, it may take a few weeks.
Until then, Pacific Legal Foundation will continue its efforts to protect the individual liberties of Americans and ensure that our branches of government remain within their proper constitutional boundaries.
